“The energy transition is inevitable, now is the time to act”

March 2018

In this exclusive Q&A with Critical Resource, leading sustainability advocate Rachel Kyte calls for more climate action by the IOCs, NOCs and the mining industry, and urges the renewable sector to learn from the mistakes of the extractives sector.

Rachel Kyte is CEO of Sustainable Energy for All, and Special Representative of the UN Secretary-General for Sustainable Energy for All. She was formerly the World Bank Group VP and Special Envoy for Climate Change. Rachel has recently joined Critical Resource’s Senior Advisory Panel.

We have to deeply decarbonise the economy – the sooner we start, the better

Rachel Kyte

“Every discussion on climate change should start with the recognition that we need to reach zero net emissions as close to mid-century as possible. It is important for boards and senior management of oil and gas companies to hold onto this point, and not get distracted by the fact that all the scenarios for the energy transition maintain at least some amount of oil and gas. The business model of oil and gas companies should be one of burning less fossil fuels, and capturing and using those that are burnt. Companies that fail to recognise this will be hit the hardest.

As the world strives towards achieving the two-degree target set by the Paris Agreement, oil and gas companies will have to manage a number of incoming curve balls at the same time. The divestment movement, for example, is quickly becoming mainstream, as institutional investors and pension funds want to reduce the tail exposure of heavily carbonised assets. Civil society is also ramping up action against oil and gas companies including, importantly, through legal means.”

Companies need to be more consistent with their messaging on climate change

“Companies’ messaging on climate change has been slightly schizophrenic at times. To some extent, this can be excused as the energy transition will be a difficult one to manage. Nevertheless, there needs to be greater consistency in C-Suites and board rooms. While some listed companies have been very good at engaging with the Task force on Climate-related Financial Disclosures (TCFD), the Oil and Gas Climate Initiative (OGCI) and other leadership groups, a significant amount of effort and resources are still spent on lobbying to hold on to harmful subsidies. The oil and gas industry has also been inordinately powerful in its relations with stakeholders, governments, investors and regulators.

It does not help that governments have also been inconsistent in their messaging on climate change. G7 countries have agreed to a below 2-degree scenario, yet fossil fuel subsidies have increased in some OECD countries, while others still use their export-credit guarantee agencies to export polluting technologies. There is a lot of hedging as to what the energy transition to a decarbonised world will look like.”

Engaging national oil companies in this debate is really important

“The debate on climate change has not paid enough attention to national oil companies, as there are fewer pressure points and actors putting pressure on them. When we think of “responsible” oil and gas companies, we think of a handful of vanguard leaders, but this leadership needs to extend to a much larger number of companies across Asia, Africa, and Latin America.

Last year, the International Monetary Fund described climate change as a systemic macroeconomic risk that translates into risks at the sovereign level. Therefore, how national companies think about their future role within the national context is very important. This is where public policy and the industry meet – helping national companies think through various climate scenarios must be a concern of governments and the industry, not just international development organisations or the UN.”

The debate on climate change will soon hit the mining industry

“We should not lose sight of the fact that 40 per cent of the emissions reduction needed to arrive at a 2-degree scenario can be achieved through energy efficiency. Some smart companies in the oil and gas sector have already committed to doubling or tripling energy efficiency in their own operations. However, if we look at the mining sector, progress is far less evident outside global leaders. Mining companies are typically energy intensive and operate in jurisdictions where regulations around energy efficiency are weak or absent. Only a few governments and regulators have embraced energy efficiency methods with enthusiasm.

Fortunately, things are slowly changing. The mining industry is starting to realise that operating at a higher level of efficiency can provide more secure energy supply – which is one of the main risks companies face. In particular, mining companies operating in Africa have shown more awareness of the need to be on a different curve from an efficiency perspective. This has been driven by national and local leaders worried about air quality – after they have witnessed the extent of air pollution in many Asian cities.”

The renewable sector must learn from the best practices of the extractives sector

“Another important trend that we are observing is the rapid growth of renewable energy, largely as a consequence of the tumbling price of renewables, in particular solar, and storage. This helps diversify our energy mix towards achieving the 2-degree target. 2017 was a tipping point as the price at auction of grid connected renewables brought them below the cost of coal, and investment in renewables surpassed that in fossil fuel energy generation.

However, renewable energy is an emerging industry and needs to manage its risks. Many renewable companies are young and unused to working in jurisdictions that may not be well-regulated. They may also wrongly assume that they will face less scrutiny than the extractive sector because they are producing cleaner energy. We are seeing increasing concerns particularly around land acquisition for renewable projects, which is often done in a hurried way without adequate compensation to local communities. It is incumbent on the renewable energy sector to understand these risks and tensions and learn from the experience of the mining and fossil fuels sector.”

The industry has a bigger role to play in ensuring energy access for all

“Over 1 billion people have no access to electricity, and more than 3 billion lack access to clean fuels and technologies for cooking as of 2017 – most of them are in South Asia and sub-Saharan Africa. These numbers are shocking, and the extractive industry has an important role to play in correcting them. First, it should support off-grid or distributed solutions to reach people in rural and remote areas. This can be done by leveraging upon community engagement strategies and in partnership with governments and development actors.

Second, the extractive industry can help bring about cleaner fuels for cooking, such as LNG and LPG ethanol. While these should only be transition fuels, the impact they could have on human health are huge – 50 per cent of under-five mortality rates can be attributed to indoor air pollution, which is in turn caused by cooking without a clean fuel source. For this to happen, distribution networks need to be improved through public-private partnerships.”

Diversity is not a nice to have, but a need to have

“Some companies in the extractive sector have been at the forefront of advancements in terms of equal employment. For instance, the recognition that women can be safer stewards of heavy machinery led to more opportunities for women in the work force in the mining industry. Groups and initiatives focusing on how to build meaningful careers on an equitable basis for women in the industry are also growing in strength.

However, the extractives industry lags behind other sectors in the economy in terms of the number of women in boards and senior management positions. There is very good empirical evidence to support the idea that diverse teams make better risk decisions. If you imagine that the world is about to enter an unprecedented transition phase, of which none of us really knows the contours, having the most diverse and talented leadership team only makes sense.”